DFIs and their relevance to the economy

The Central Bank of Nigeria (CBN) in its current 2012 annual report noted the poor state of publicly funded development finance institutions (DFIs). According to the CBN, DFIs are typified by weak financial condition, poor corporate governance and high level of non-performing loans. Bringing to the fore how the nation’s scarce resources put to inefficient use and the lack of accountability in our public institutions.

The report which has once again demonstrated the CBN’s avowed commitment to exposing wastage and its adherence to the tenets of corporate governance. It has also clearly shown that the institutions have received billions of tax payers’ funds without clearly defined responsibilities.

This is at variance with happenings in other countries such as in Brazil where one institution, the Brazilian Development Bank, also known as National Bank for the Economic and Social Development, (BNDES), a federal public company associated with the country’s ministry of development, industry and foreign trade is reputed for providing long-term financing for endeavors that contribute to the country’s development.

According to the CBN report, Bank of Agriculture (BOA), Federal Mortgage Bank of Nigeria (FMBN), Bank of Industry (BOI), the Nigerian Export-Import Bank (NEXIM), and the Infrastructure Bank (IB), appendages of one federal ministry or the other which are supposed to bring development to the economy, lack strategic direction and were denied effective oversight due to absence of board of directors, even when they are supervising ministers. The board for NEXIM was inaugurated last August.

Although, it singled out the private sector-led Infrastructure Bank as the only one with board of directors, the report further revealed that the combined shareholders’ funds of the banks with substantial government ownership, declined by 50.8 percent to N12.7 billion as at the end of 2012, from N25.8 billion as at end-December 2011. Specifically, the institutions have become non performing institutions and therefore, have become drain pipes on the nation’s resources. A situation at variance with their mandate: offer specialised and micro financial services, relatively cheap and accessible financing options, provide long-term finance for infrastructure development, industrial growth, agriculture, and small and medium enterprises (SME) development,

“On-site examination was carried out on the five (5) Development Finance Institutions (DFIs), namely, the Bank of Agriculture (BOA), the Federal Mortgage Bank of Nigeria (FMBN), the Bank of Industry (BOI), the Nigerian Export-Import Bank (NEXIM), and the Infrastructure Bank (IB). The exercise revealed that most of the institutions were in weak financial conditions, as indicated by their very high levels of non-performing loans portfolios and poor corporate governance,” CBN said. Surprisingly, most if not all of these institutions give the impression that all is well.

BNDES of Brazil, considered the largest development bank in the world, has lived up to its expectation, improving competitiveness of the Brazilian economy as well the quality of life of its Brazilians. The Nigerian government could draw inspiration from BNDES. There is nothing wrong in considering merging compatible DFIs. An enhanced size and pooling of resources could improve effectiveness. The present operations and appointments which are in most cases based on political patronage do not augur well for the economy and the much needed development for which they were created.

Another way of checking these institutions is to allow them go to the capital market to raise funds. This will enhance the level of corporate governance and the shareholders who have put in their hard earned money will ensure that high ethical and corporate governance standards are maintained. This is the only way to make the institutions competitive and relevant to the needs of the economy and its citizens.